Decoding the new economy

Cripple our kids with debt? That’s our choice.

Spooked by the government’s efforts to shore up the economy during the greatest economic crisis in over a century, Australia’s politicians and the media are warning we are setting up the next generation to be crippled by today’s debt.

But is this true? What happened the last time Australian governments incurred high debts?

In 1946, Australian government debt reached 140% of GDP after six years of war. As a 2009 Treasury paper, ‘A History of Public Debt in Australia’ describes.

“Gross Australian Government debt increased from around 40 per cent of GDP in 1939 to around 120 per cent of GDP in 1945.“

Australian government debt from 1901 to 2008

“Australian Government debt was progressively reduced after the Second World War and largely eliminated by the beginning of the 1970s.“

After the first round of government support packages during the current crisis, Australia’s net debt is expected to hit 26% by June this year.

Today’s debt level will get substantially higher as unemployment continues to soar, government revenues collapse and industries line up for support packages. It’s likely Australia’s government debt will exceed 1946’s in the near future.

So, given we’re facing levels of government debt not seen since the end of World War II, what happened to the generation ‘shackled’ by those deficits?

We now call them the ‘Baby Boomers’ and, as a group, they did pretty well despite those debts.

Australia GDP Growth 1960-2020
source: CEIC Data

Australian unemployment rate 1901-2000
Source: Australia’s century since Federation at a glance, Australian Treasury 2019

As economist John Quiggan writes in The Conversation, following World War II, governments were determined to avoid the mistakes made after the Great War which resulted in years of depression and unemployment.

Many of those post-war policies, based on direct government intervention and designed to ensure full employment, were abandoned by governments around the world, including Australia’s, from the 1980s.

Looking at the graph of Australia’s GDP growth, it’s striking how economic growth slowed from the end of the 1980s to the anaemic levels of the post-GFC years.

So there are lessons from the periods of high debt after the two world wars, that the choice to inflict austerity upon a generation is a political decision.

We have to make it clear to today’s political leaders that crippling a generation to pay down today’s debt is not acceptable. When the crisis passes, rebuilding the economy can – and should – including improving our children’s standard of living.

Out of today’s dire crisis, we have the opportunity to build a better economy and society. We have no reason to shackle the next generation as we repay our debts.

One step beyond

The catastrophe facing the economy from the necessary closing of industry in the face of the COVID-19 outbreak has dawned on the Australian government. But we have a long way to go.

Prime Minister Scott Morrison’s belated and inadequate Jobs Keeper package announced today is the first step in addressing the greatest economic crisis facing Australia since Federation and this package will be almost be widened, simplified and bought forward well before payments are scheduled to kick in at the beginning of May.

In 2008, the aim of stimulus and support packages was to avoid the very situation we find ourselves in now — widespread business collapses and long unemployment queues. We’re one step beyond where governments were a decade ago.

The size of the collapse should not be understated, looking at the composition of the Australian workforce, we can see exactly how great the damage has been over the past two weeks with two sectors – tourism and hospitality – taking the immediate hit

Industry of employment (Division)	Feb-19 (‘000)
Agriculture, Forestry and Fishing	332
Mining	251.7
Manufacturing	872.5
Electricity, Gas, Water and Waste Services	147.6
Construction	1,153.90
Wholesale Trade	390.9
Retail Trade	1,284.70
Accommodation and Food Services	907.1
Transport, Postal and Warehousing	666.1
Information Media and Telecommunications	220.4
Financial and Insurance Services	445.5
Rental, Hiring and Real Estate Services	216.3
Professional, Scientific and Technical Services	1,115.30
Administrative and Support Services	414.1
Public Administration and Safety	858.5
Education and Training	1,032.40
Health Care and Social Assistance	1,702.70
Arts and Recreation Services	247.4
Other Services	515.7
Total employed	12,774.60

Source: ABS, Labour force, detailed, quarterly, Feb 2019, cat. no. 6291.0.55.003 (Table 04)

Given the widespread shut downs over the past three weeks, it would be conservative to estimate a million jobs have been lost across the Accommodation and Food Services, Retail Trade, and Arts and Recreation sectors.

With the near shutting down of the Australian aviation industry and the laying off of nearly 30,000 workers by Qantas and Virgin, it would be conservative to say at least 20% of the Transport, Postal and Warehousing sector have lost their jobs as well, despite the demand on logistics chains as shoppers panic buy.

Similar disasters are looming in other sectors including, perversely, Health Care and Social Assistance as areas like day care and private hospitals start to close.

All of which makes the Federal Government’s dithering with support packages for industry, workers and small business more tragic. The delay in bringing in today’s package, at least a week late, has been a disaster for the economy.

The idea payments won’t start until the first week in May is laughable, the drag on the economy, and the human tragedy of thousands of failed businesses in the meantime means it will almost certainly be bought forward with the 30% turnover fall requirement being dropped

If it wasn’t obvious during the slow and muddled response to the bushfire crisis, it’s clear Australia’s leaders struggle with an emergency, and this one has a long way to go.

With the economic crisis threatening to go a lot longer than the pandemic, there will be a lot more money spent and already we’re hearing the cries of ‘who will pay for this?’

One lesson from the 2008 crisis was the cost of austerity to pay for the support and bail outs. Hopefully Australian politicians can learn from Europe’s mistakes and avoid Austerity although that will challenge the Liberal and Labor parties’ modern ideology.

We have a long way to go on this.

Y2K and its roll in my downfall

Two decades ago today, the world was breathing a collective sigh of relief as as the direst predictions of Y2K turned out to be overcooked.

I was one of those, at the time running an IT support business and appearing on a fortnightly tech segment on the local ABC station. Little did I know that Y2K had already set me on at least two career changes.

The radio show itself had been as a result of the Y2K bug. In early 1998 I heard a pundit giving some dangerous computer advice on the-then 2BL – now ABC Sydney.

His advice risked locking small business owners out of their accounting systems and it wasn’t hard to imagine the devastation he could cause for any proprietor following his instructions.

So I dashed off a fax to the show’s producers – the ABC didn’t accept emails from the public in 1998 – arrogantly suggesting it might not be a bad idea to think twice before inviting the guest back again.

Two weeks later Bob Hughes, ABC Sydney’s then weekend announcer called asking if I’d like to come in and talk about Y2K and some of the other issues I’d raised in the fax.

I rocked up the following Saturday morning and did ten minutes on air giving, what I hoped, was a useful and plain English overview of the Y2K bug dispelling some myths and hysteria as well as some useful tips on checking for problems.

Then, without warning, Bob opened the line for listeners’ calls.

After what felt like two hours of stumbling my way through a range of random callers, Bob said “see you in a few weeks” and I was on the roster.

I ended up doing ABC shows for the next 18 years. First on ABC Sydney Weekends and then on the national Nightlife program with the evergreen Tony Delroy.

It was one Thursday night spot with Tony that started my writing ventures. I appeared with Yvonne Adele, now a professional MC and public speaker but then making her name as Ms Megabyte.

Yvonne had been working with John Wylie and Sons on the Australian edition of their flagship PCs for Dummies but her commitments were making it hard for her to give the project the time it needed. She put my name forward to work on them.

Having already written one book on small business IT which had been born out of the feedback from the radio spots, PCs for Dummies was an obvious move and it led to four more titles.

That writing in turn led to a Smart Company column covering small business tech issues which I stuck with for ten years as I moved on from my IT support business and dabbled in other ventures.

As the other ventures didn’t have the success of PC Rescue, I found myself increasingly relying on freelance writing for income which eventually led to contributing pieces to the mainstream newspapers on tech and NBN issues.

Eventually that turn to journalism saw me spend two years News Editor at Mumbrella and now a role at a Australia’s main IT professional organisation.

All of this started with the Y2K bug. It’s funny how things take you where you don’t expect.

It wasn’t just me that saw Y2K deliver a career change, for the Australian IT industry, the year 2000 was its peak. That year saw the dot com boom peak and the introduction of the GST. It was a good time to be in tech.

But good times don’t last, and the combination of Y2K passing, the GST being implemented in July 2000 and the tech wreck coming at the end of the year, many Australian tech professionals found themselves driving cabs or working on building sites.

The industry lost many good people and only in the last few years, two decades on, has it truly recovered. But that’s a post for another time.

Australia’s lost business agility

The latest IMD digital competitiveness ratings show Australia sliding down the ranks, how can we address this decline?

The recent digital competitive index by Swiss business school IMD, flagged a worrying trend in Australian industry, reporting the nation’s commercial sector is falling behind its international counterparts in digital competitiveness.

Overall the IMD’s digital competitive rankings weren’t terrible for Australia with the nation only sliding one place to 15th globally from its 2018 place — albeit down from ninth five years ago.

But the indicators that kept Australia in the top 20 were in the nation’s international student numbers and the national credit rating, hardly the mark of an economy on the leading edge.

Jarringly, the survey ranked the nation’s business agility, 45th out of the 63 economies surveyed.

IMD’s definition of an economy’s business agility includes the local industry’s adoption of big data, IT integration, concentration of robots and local companies’ ability to respond to opportunities among other factors.

For those of us who’ve spent the last two decades proselytising about the importance of investing in technology, the fall was disappointing but unsurprising as Australia has long been lagging in its digital investments.

The answers to why this is happened over a twenty year period that saw Australia become one of the world’s richest economies lies mainly in the investment priorities and opportunities of the nation’s small business and corporate sectors.

With the exception of the mining industry, Australian corporations aren’t globally focused. Most of the nation’s large corporations are domestically facing service providers like banks, telcos, toll road operators and supermarkets which sees them focused on maximising local profits rather than competing in international markets.

Most of them also operate as duopolies or monopolies, so much so that in most sectors, Australia can be described as the ‘Noah’s Ark of business’.

Added to that, those dominant local corporates have shareholders addicted to high dividends., in turn reducing the funds available for reinvesting in the businesses.

When Australian corporates do invest in digital technologies, it’s almost always to slash costs. A mindset which leads them into disastrous deals with global IT outsourcers and tech vendors.

Of course continual failure on that level doesn’t matter when you can pass the costs of failure onto customers by increasing milk prices or credit card fees.

For the small business sector there’s a slightly different set of constraints, however with most SMB’s also being local service providers they haven’t needed to invest to stay competitive.

But small businesses trying to compete in global markets, or looking to invest invest, face another problem — accessing capital.

Over the last 30 years, Australia’s small business sector has been frozen out of bank lending with loans only accessible to proprietors able to pledge 100% collateral — usually home equity — against their loans.

For providing effectively risk free loans Australian banks charged handsomely, helping make them the profitable banks on the planet, something that was missed in the weak, and dare one say naive, conclusions of the Hayne Royal Commission into the nation’s finance industry.

The upshot of the banks’ refusal to lend to small businesses means their investment and subsequent productivity has stagnated and fewer have been able to compete in global markets.

So Australia’s fall in competitive indexes isn’t surprising and it’s an added handbrake on the economy as the government struggles with flat income growth, stagnant private sector employment rates and declining GDP per capita.

Fixing these roadblocks is wholly up to government — the banking system needs to be reformed, taxation policies need to be overhauled and serious consideration has to be made about breaking up the nation’s more inefficient and dominant corporates to stimulate domestic competition and innovation.

Sadly, there’s little recognition of the problem among Australian’s politicians, bureaucrats, business leaders or media and, one suspects, there’s no appetite for meaningful reform.

So Australia will muddle along for the moment, but its hard to see how living standards can be maintained as the country’s business sector stagnates.

Which is the real warning from the IMD.

Changes

Last month everything changed.

Instead of waking up at 5am, lying in bed and checking the overnight news and media releases on my phone, I was able to lie in, consider going to the gym and wandering into work at a sensible hour.

My two years as Mumbrella’s news editor had come to end.

Modern digital journalism is not for the lazy or the faint hearted. The tyranny of a daily newsletter means the editors are always hungry for stories and stressing about scooping the opposition.

The hours up to sending the daily newsletter – around 10.30am for Mumbrella – go in a blur.

After the newsletter is sent, the duty editor’s challenge is to keep the website up to date while keeping a beady eye out for breaking news, story ideas for coming days, complaints about earlier stories and moderating the often defamatory comment stream.

Lucky editors have great reporters in their teams. In my case, I had Zoe Samios and Abigail Dawson who both awed and scared me with their work ethic and ferocious competitiveness.

I was very lucky.

That luck held in working alongside Josie Tutty, Mumbrella’s deputy editor, whose editorial sense and attention to detail saved me from countless shocking howlers.

With that team, Mumbrella managed to score its highest ever traffic in 2018.

Those opportunities, privileges and challenges came at a cost, though with stress an every-present problem for everyone in editorial teams.

One former editor of an industry website told me they had PTSD after four years of running one site.

Despite the stresses, those two years had been interesting. I’d learned a lot and I’m eternally grateful to Tim Burrowes for the opportunity to have a deep, if short, dive into an industry which I didn’t really understand along with the privilege of working with some of the smartest and hardest working young journalists in Australia.

It was also the opportunity to be on the editor’s side of journalism, a challenge I genuinely thought I would never get.

However when Zoe, Abby and Josie decided to move on for their own individual reasons, it was time for me to move on as well.

Again, I was lucky. A role at the Australian Computer Society opened up which allows me to get back into tech in a position that gives me the opportunity to help raise the IT industry’s importance to the nation’s and political leaders.

This has been my passion and was too good an opportunity to pass up.

Added to the attractions were a much shorter commute, nicer offices, more civilised working hours and far less stress.

I’ll miss the hipster vibe of Chippendale, even though I was probably the oldest person in the suburb, let alone the office, along with the opportunity of dressing like an extra from Mr Robot.

Now I’m at Barangaroo (the towers in the featured image) I have to dress like a sensible, middle aged adult.

The last two years were at times fun, at times dispiriting and at times infuriating. On the latter point, it’s remarkable how sensitive those outwardly hard-nosed agency bosses, journalists and publishers can be when relatively trivial stories upset their fragile egos.

I won’t miss those panicked phone calls from hysterical publishers, journos and agency bosses who, quite frankly, were old enough to know better. You know who you are.

But on balance, my time at Mumbrella was a challenging and fun adventure. I wish the new team, as well as Tim and his co-founder Martin Lane, all best in navigating a business reporting on an industry that doesn’t understand its own challenges.

So I’m thankful for the opportunity, and I’m grateful for the change.

I hope to see many of you around in the new role.

GE’s Predix predicament – an industrial giant finds software is hard

GE’s IoT predicament illustrates just how complex the engineering and management challenges of the Internet of Things really are.

Industrial giant General Electric is finding software is hard, reports Business Insider.

The company, which former CEO Jeff Immelt declared was a ‘digital industrial company’ is finding its Predix software system and associated cloud services are far more complex and difficult to manage than expected.

Back in 2015, I toured the head office of GE Software outside of Silicon Valley and interviewed the division’s boss, Bill Ruh.

Ruh was upbeat about the internet of things – or Industrial Internet in GE’s terminology – with an estimate the IoT was worth $14 billion to the company as it found new efficiencies and markets.

Today that vision’s looking a little tarnished as the company struggles with a 25% share price drop and a self imposed ‘time out’ on Predix’s development.

GE’s IoT predicament illustrates just how complex the engineering and management challenges of the Internet of Things really are.

The software needs of a sensor in a train brake pad are very different to that of fuel pump in a jet engine or the blade controllers of wind turbine.

Added to that is the challenge of organising, storing and securing the information these devices collect. This is the main reason why GE is moving its data management services to AWS and Microsoft Azure.

That a company with the resources and top level commitment of GE is struggling with this underscores the complexity of the internet of things. That complexity is something every IoT advocate and connected device vendor fails to consider at their, and their customer’s, peril.

Author: Paul Wallbank

Cripple our kids with debt? That’s our choice.

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